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Foreclosure Discounts Shrink in 2012

By Steve Cook, Real Estate Economy Watch   |   April 19, 2012 at 10:14 AM   |   Comments

The rates that foreclosures and short sales are discounted from full-price properties have declined significantly in 2012, especially discounts for higher priced properties and in some of the markets hit hardest by foreclosures in the past.

The latest Realtor Confidence Survey by the National Association of Realtors found that the foreclosure discount has fallen from approximately 22 percent in February to 18.8 percent in March. The discount for short sales has shrunk from18 percent in January fell to 15.8 percent in March. Results were based upon a survey of Realtors.

Separately, using data on sales of foreclosed and REO properties through February, the FNC Residential Price Index found that foreclosure discounts declined to below pre-crisis levels for higher value properties (over $250,000), but remained elevated for lower-priced homes. FNC also found that in the fourth quarter of last year, foreclosure discount s declined in a number of the hardest hit markets, including Phoenix, Tampa, Miami, Las Vegas and Atlanta, driven by sharp declines in foreclosure sales.

Discounts reported by RealtyTrac were far higher in the fourth quarter of last year. The average sales price of a bank-owned foreclosure in the fourth quarter was 36 percent below the average sales price of a non-foreclosure home, while the average discount on bank-owned homes for all of 2011 was 40 percent, according to RealtyTrac's Fourth Quarter and Year-End 2011 U.S. Foreclosure Sales Report.

RealtyTrac also published its top ten list of REO markets, based on fourth quarter data and ranked by average discount size. Milwaukee (57.9 percent discount) ranked first, Philadelphia (52.52 percent) second, Boston (50.92 percent) third, Chicago (49.71 percent) fourth and Atlanta (48.12 percent) fifth. None of the top ten discount markets were located in the four "sand states," the traditional center for most foreclosure activity.

Shrinking discounts now are thought to be a sign of market stabilization just as increasing discounts reflect instability and put downward pressure on property values. "The size of the difference—name the foreclosure price discount—underscores the impact of market distress and foreclosure activities on property values," said FNC in a news release.

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